Extra cash on offer for working parents

With childcare costs spiralling, get every penny of help you can, says David Prosser

Friday 7 April 2006 23:00 BST

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While critics dismissed Gordon Brown's budget last month as a political statement short on real policy initiatives, it did include some valuable help for working parents. Childcare costs keep rising, but on Thursday, the first day of the new tax year, the help that parents may claim from the State increased.

The Daycare Trust, the childcare charity, says that the typical cost of a full-time nursery place for a child under the age of two has been rising by more than 5 per cent a year. It now costs £141 a week in England, and is only slightly cheaper elsewhere in the UK.

The charity also says that a full-time place with a childminder is about £125 a week, while the typical nanny costs up to £400 a week. Even after-school clubs are expensive, at an average of £45 for 15 hours.

The most valuable initiative for many families is the Government-sponsored childcare vouchers scheme, an increasingly valuable benefit now provided by 5,500 employers at very little cost to them.

It enables staff to take part of their pay in the form of a voucher that can be put towards childcare costs. The cost of this voucher is taken out of your pre-tax wage packet, so you don't pay any tax or National Insurance on this part of your salary. Your employer doesn't have to pay any NI on the vouchers either.

In the Budget, the Chancellor announced that, from this week, the maximum amount of pay employees can take as childcare vouchers would rise from £50 to £55 a week. Assuming they take the full amount, that effectively reduces the cost of childcare by just over £960 a year for basic-rate taxpayers, rising to £1,195 a year for higher-rate taxpayers. You can claim however much you earn, and if both parents work for employers that participate in the scheme, both can join.

If your employer is not signed up, it is worth lobbying the human resources department. "Companies want to know that the administration and costs will be as minimal as possible, but we can make the scheme extremely flexible and simple," says Phillip Waller, of Fair Care Services, one of several specialist companies that administer the scheme.

Most of these providers provide all the documentation that staff will need and do most of the processing and administration. They charge a fee for this service, but it should be less than the savings that employers stand to make on NI contributions for staff who join.

It is not only children in nurseries whose parents can use the vouchers scheme. "Anyone providing Ofsted-registered or approved care is eligible," says Waller. That includes all nurseries, childminders and pre- and post-school clubs, because there is a legal requirement for these carers to register with the education inspectorate.

In addition, many nannies may qualify. Even if they are not covered by the Ofsted system, nannies now have the option of registering with the Government's SureStart service. You can check your nanny's status at www.childcareapprovalscheme.co.uk.

However, not all employers will join up, and the 3.6 million self-employed people in this country are excluded from the scheme.

But vouchers are not the only way that you can reduce the cost of paying a professional to look after your children. Families where both parents work at least 16 hours a week (or single-parent families where mum or dad meets this criterion) may be eligible to claim help with the cost of childcare through the working tax credit.

This is a benefit for families on low incomes. It isn't possible to say exactly what the threshold is, because HM Revenue & Customs takes a range of factors into account on each claim, but if you do qualify, you will be able to claim up to 80p of every £1 spent on childcare, up to £175 a week for one child, or £300 a week for two or more children.

This is another benefit made more generous in the Budget - the childcare help was previously limited to 70p in the pound.

Christine Walton, chief executive of the Daycare Trust, says that both Budget initiatives are good news for working parents, as long as they can actually find childcare provision. "Many parents will gain from the increased help with the costs of childcare," she says, "but next year's Comprehensive Spending Review must include a review of funding for the whole early education and childcare system."

There are other types of help available in limited circumstances. Lone parents, for example, may be able to claim childcare support under the New Deal, in order to help them return to work. Also, a few more employers may offer crèches, under a Budget initiative to support childcare in the workplace.

It is also worth checking whether you are eligible for child tax credits, available to nine out of 10 families. Parents with household incomes of up to £58,000 a year are eligible to claim (rising to £66,000 for families with a child under the age of one). See
www.hmrc.gov.uk/individuals.

'My childcare costs are now affordable'

When Gemma Foster joined Praxis Mortgages in Birmingham last year, she was initially disappointed that the firm, which has 100 staff, did not participate in the Government's childcare vouchers scheme. But fortunately, as human resources and training manager, she was able to do something about it.

"I was able to show that it wouldn't cost the company anything other than my time to introduce a scheme," she says. "They were very supportive because they could see the obvious benefits and it was then just a case of working out which staff would be interested."

Gemma had the scheme up and running by November and was one of the first joiners. Her two-and-a-half year-old son Callum is in a nursery four days a week and Gemma claims the full £55 a week worth of vouchers to put towards the fees. "My husband's employer also offers a vouchers scheme, so between the two of us the savings are quite considerable," she adds.